When you’re behind on bills but still bringing in income, Chapter 13 bankruptcy can give you a structured path forward – without forcing you to give up your home, car, or other important assets. Unlike Chapter 7, which clears debts quickly but may require selling property, Chapter 13 works differently: you propose a realistic repayment plan, and you get to keep what matters most while you catch up.
Here’s what you need to know about Chapter 13 in Illinois.
What Is Chapter 13 Bankruptcy?
Chapter 13 is sometimes called a “wage earner’s plan.” It’s a federal bankruptcy option that lets you repay all or part of your debts over three to five years, with court approval. Your monthly payments go to a Chapter 13 trustee, who distributes the funds to your creditors according to your plan.
Three things happen right away when you file:
- Automatic stay: An immediate court order stops most collection actions – including foreclosure, wage garnishment, and creditor calls.
- Asset protection: You can keep your property as long as you make your plan payments and stay current on secured debts.
- A payment plan: You propose a structured schedule that fits your income and meets legal requirements.
Who Can File? Eligibility in Illinois
Debt Limits
Under current guidelines, you can file Chapter 13 if your total unsecured debts are under $2,750,000. This limit applies whether you’re filing alone or as a married couple.
Income Requirements
There’s no income floor – but you need to earn enough to fund a workable repayment plan. The key figure is your “disposable income”: what’s left after your necessary living expenses. That’s what determines your monthly payment.
Prior Bankruptcy Dismissals
If a previous bankruptcy case was dismissed within the last 180 days because you missed a court appearance or didn’t follow court orders, you’ll need to wait before refiling.
Credit Counseling
Everyone filing must complete credit counseling from an approved agency within 180 days before submitting their bankruptcy petition.
The Repayment Plan – The Heart of Chapter 13
Your repayment plan is what makes Chapter 13 different from everything else. It’s a legally binding agreement between you, your creditors, and the court.
How Long Is the Plan?
The length depends on how your income compares to Illinois’s median income for your household size. If you’re below the median, your plan typically runs three years. If you’re above it, it generally runs five years.
How Is the Payment Calculated?
Your payment is based on your projected disposable income – what you have left after necessary expenses. Priority debts (like certain taxes and domestic support obligations like child support or alimony) must be paid in full through the plan. Unsecured creditors must receive at least as much as they would have gotten in a Chapter 7 liquidation.
The Confirmation Hearing
After you file your plan, the trustee holds a meeting with creditors. Then a judge decides whether to approve – or “confirm” – the plan. For confirmation, the plan must meet specific legal standards, including that liquidation test: unsecured creditors can’t receive less than they’d get if your assets were sold in a Chapter 7.
Illinois Exemptions in a Chapter 13 Case
Illinois is an “opt-out” state, meaning you use Illinois state exemption laws rather than federal ones. In Chapter 13, you can keep all your property – but the value of non-exempt assets matters. If you have property that isn’t exempt, your plan must pay unsecured creditors at least that amount.
Here are the key Illinois exemptions, reflecting amounts updated on January 1, 2026:
| Asset | Exemption Amount (2026) | What It Covers |
|---|---|---|
| Home (Homestead) | $50,000 single / $100,000 joint | Equity in your primary residence, including condos and mobile homes |
| Motor Vehicle | $3,600 | Equity in one vehicle |
| Wildcard | $4,000 | Any personal property – bank accounts, tax refunds, or added to vehicle exemption |
| Household Goods | Items under $5,000 each | Creditors generally can’t touch items worth less than $5,000 individually |
| Tools of the Trade | $2,250 | Tools, books, or equipment used for your work |
| Retirement Accounts | Fully exempt | IRAs, 401(k)s, most pensions – fully protected |
| Public Benefits | Fully exempt | Social Security, unemployment, veterans’ benefits, disability |
| Jewelry | Up to $5,000 (one item) | One piece of jewelry can be protected |
What Debts Get Discharged?
Once you complete all your plan payments, the court grants a discharge of remaining eligible debts. Chapter 13 actually discharges a wider range of debts than Chapter 7 in some categories.
Commonly discharged debts include credit card balances, medical bills, personal loans, and certain older income taxes (when they meet specific age and filing rules).
However, some debts always survive bankruptcy:
- Most student loans
- Child support and alimony
- Injuries caused by drunk driving
- Fines and penalties owed to government entities
- Debts from fraud or embezzlement
- Long-term mortgage obligations (you can cure missed payments, but the mortgage lien stays until paid off)
The Real Pros and Cons
Why Chapter 13 Might Be Right for You
- Save your home: You can catch up on missed mortgage payments over the life of the plan and stop a foreclosure in its tracks – as long as you keep paying your regular monthly mortgage.
- Keep property you’d lose in Chapter 7: Pay the value of non-exempt assets through the plan instead of handing them over.
- Protect co-signers: The automatic stay can shield co-debtors from collection actions on consumer debts.
- Cure car and tax arrears: Bring overdue car payments and tax obligations current through the plan.
What to Think Carefully About
- Long commitment: You’re signing up for 3-5 years of monthly payments. You’ll need stable income and consistent discipline.
- Credit impact: A Chapter 13 stays on your credit report for seven years (three years less than a Chapter 7).
- Higher costs: Legal fees and trustee fees are typically more than Chapter 7 because the case is longer and more complex.
- Risk of dismissal: If you miss plan payments, your case can be dismissed – and you’ll be back to square one with creditors.
The Chapter 13 Process, Start to Finish
- Complete pre-filing credit counseling from an approved agency.
- File your bankruptcy petition, schedules, and proposed repayment plan with the appropriate Illinois federal district court.
- The automatic stay kicks in immediately – creditors must stop collection actions.
- Begin making plan payments within 30 days of filing, even before the plan is officially approved.
- Attend the 341 Meeting (meeting of creditors) with the Chapter 13 trustee to answer questions about your finances.
- A judge holds a confirmation hearing to decide whether to approve your plan.
- Make monthly payments to the trustee for 3-5 years.
- After your final payment, receive a discharge of eligible remaining debts.
Which Illinois Federal Court Handles Your Case?
Bankruptcy cases are filed in federal court. Where you file depends on your county. Each district has its own local rules:
- Northern District: Covers Chicago and northern counties, including a Rockford division. Court locations in Chicago and Rockford.
- Central District: Covers Springfield, Peoria, and Urbana.
- Southern District: Covers East St. Louis and Benton.
Frequently Asked Questions
What’s the difference between Chapter 7 and Chapter 13?
Chapter 7 is faster (3-6 months) but may require selling non-exempt assets to pay debts. Chapter 13 takes longer (3-5 years) but lets you keep your assets by repaying creditors over time. Chapter 13 is usually the better fit if you have regular income and are behind on a mortgage or car loan.
Can I keep my house if I file Chapter 13?
Yes, generally. Chapter 13 lets you catch up on missed mortgage payments through your repayment plan – as long as you keep making your regular monthly payments going forward. It’s one of the most powerful tools for stopping a foreclosure.
What property can I keep in Chapter 13?
In Chapter 13, you can usually keep all of your property as long as your plan pays creditors at least as much as they’d receive if your assets were sold. Illinois exemptions – like the homestead and wildcard exemptions – further protect specific assets regardless of plan value.
Why Work with an Illinois Attorney?
Illinois has its own exemptions, court districts, and local rules that directly affect your case. Getting them wrong can cost you a property you didn’t need to lose.
A local attorney knows how Illinois trustees operate, what your district court expects, and how to time your filing to protect the most. More importantly, they give you an honest read on your situation – so you can make a clear decision without having to figure out the law on your own. Schedule a free consultation today!